Elections first, investment grade to follow
The government’s goal remains attaining investment grade in 2023, with analysts estimating that it remains feasible, despite the rising cost of debt refinancing caused by the normalization of monetary policy. However, they believe that the elections will determine the timing of this long-awaited upgrade.
As the elections approach, rating agencies would rather see the new political landscape before proceeding to the next step, even if they are close to granting Greece investment grade.
R&I this week upgraded the Greek economy’s rating to BB+, one step below investment grade, on a par with S&P, DBRS and Scope Ratings. Fitch and Moody’s respectively rank Greece two and three steps away from investment grade, with Fitch’s next verdict due on July 8.
Capital Economics considers investment grade is close: “I believe that Greece has a good chance of achieving investment level by at least one agency by end-2023,” estimates the firm’s chief economist, Andrew Cunningham. He tells Kathimerini the Greek economy has recovered and the government has made significant progress on reforms, while debt dynamics have improved and will not deteriorate too quickly from rising bond yields because the average debt duration is too long.
However, according to the reasoning of the houses, this achievable goal is expected to be delayed at least until the end of the elections. Political instability and the further tightening of economic conditions are negative factors in terms of evaluation, but for Greece there are two “mitigating” elements, as Ricardo Amaro, a senior economist at Oxford Economics, noted to Kathimerini: New Democracy continues to enjoy a comfortable lead in opinion polls, and tighter financial conditions may lead to some deterioration in fiscal performance, but debt financing costs will not be particularly affected thanks to their very long duration.
However, the elections do not worry the agencies: “The stable political scene is an important factor and has contributed to the upward trend in Greece’s assessment. Our baseline scenario is the political situation will remain broadly stable even after the elections,” Fitch noted to Kathimerini. “As things stand, the risks posed by the election do not seem too great, since New Democracy is still well ahead in the polls,” added Cunningham.
